Hot topics in the North Coast wine business in 2012 were rapid grape and bulk-wine inflation as bottle sales outstrip anticipated supply, an unexpectedly big, “perfect” harvest and a string of mergers and acquisitions. Dominating 2013 likely will be moderating supply pricing and accelerating M&A activity, according to experts.
U.S. wine sales growth next year likely will be modest, but prices on the shelf overall probably won’t increase much, according to Rob McMillan, founder of Silicon Valley Bank’s Premium Wine division and author of an annual spring forecast for the industry. Moderating price growth is the greater availability of lower-priced wines bottled outside California made from imported bulk wine.
Sales directly to consumers is a small but rapidly growing channel, particularly for small wineries. Rather than the much-anticipated Millennial generation wine buyer (ages 21–34), Generation X (ages 35–46) is driving post-recession sales along with Boomer core consumers, according to Silicon Valley Bank’s Wine Conditions Survey last month. Forty-four percent of winery respondents tracked Boomers as the biggest direct-buying consumer group, 30 percent are Gen X, 13.4 percent “matures” (age 65-plus) and 12.8 percent Millennials.
“The Millennial is still not the real source of revenue growth for fine wine, given the cohort’s high unemployment and low net worth relative to others’,” Mr. McMillan said. He said Gen X will become more important as 10,000 boomers a day reach age 65 and slow spending.
The likely large 2012 winegrape crop may bring the hot 2012 bulk-wine and grape market into balance and ease bulk prices by as much as 15 percent from those of this year, after a spike of as much as 20 percent to 40 percent in some cases after the small 2011 crop and early in the 2012 season, according to Glenn Proctor of Ciatti Co.
Higher grape prices for U.S. growers will accelerate a move to imported bulk and bottled wine by companies targeting the value and popular premium price tiers, according to Mr. McMillan. Growing regions from Washington to California’s Central Coast had good-quality winegrape crops and yields up to 30 percent above average.
The possibility of grape shortages in France may tighten supply for value-priced brands in the U.S. as they turn to imports to fill demand and a lower cost because of a stronger dollar, according to Mr. Proctor. The French shortage could help high-end U.S. wines.
“The benefit may be that if Burgundy and Bordeaux have shorter vintages in the next couple of years, there may be openings in East Coast wine shops for higher-end California producers,” Mr. Proctor said.
The improving economy and wine sales growth are fueling wine-related M&A, according to Mr. McMillan.
“Due to improved business conditions, buyers’ and sellers’ expectations aligning more, limited returns on paper assets and better credit markets, winery and vineyard acquisitions took place at a record pace in 2012 and should continue into 2013 as strategic buyers look for vineyards to support announced growth plans,” he said.
Particularly active this year has been Foley Family Wines, acquiring the Sawyer Cellars, Lancaster Estate, Langtry Estate and Guenoc, and the Ramal East Vineyard; Australia-based Accolade Wines, picking up the Ascentia Wine Estates portfolio; Wilson Artisan Wineries, purchasing Pezzi King and the Blackstone winery facility; and Jackson Family Wines, purchasing Ramal West Vineyard and Saralee’s Vineyard.
Better returns for winegrapes in 2012 after three tough years plus a hotter market for grapes are resulting in more North Coast vineyard development and redevelopment, centering on Sonoma County, which has more plantable acreage, according to Mr. McMillan.
But renewed vineyard development comes at a time of increasing regulation of North Coast farming activities that use water and are fingered for contaminating waterways that are home to protected wildlife, he observed.
The North Coast Instream Flow Policy is back to the State Water Resources Board staff to fix environmental documents after an August court ruling, and the Russian River watershed frost program from the same agency foundered on a Mendocino County court ruling.
Coming in 2013 are the Napa County Carbon Action Plan, the current draft of which calls for sizable vineyard project carbon-offset fees, and two new sets of water-quality regulation: a proposed North Coast agricultural activities permit and a draft vineyard waiver for Sonoma Creek and Napa River stormwater runoff.